Chinese intellectual property protection – interview with Hong Kong-based legal counsel Vivien Chan

VentureOutsource.com talked with Vivien Chan, senior partner with the Hong Kong law offices of Vivien Chan & Co., about intellectual property (IP) protection in China. Transcripts from that discussion follow.

VO: By some projections, it is possible within the next five years for China to be the source of supply for more than 35% of the world's electronics hardware products. Given stories about intellectual property (IP) theft and relaxed IP protection laws in China, this can create some concerns for technology executives doing business with Chinese companies. Can you please explain to our readers five (5) common types of IP infringement your law office comes across most frequently?

Chan: The five common types of IP infringement cases our firm comes across most frequently include trademark infringement; patent infringement, infringement of industrial design, copyright infringement, and trade secret infringement.

Trademark infringement occurs when there is a violation of the exclusive rights of the trademark owner by using a trademark which is identical, or confusingly similar, to the registered trademark in respect to the same or similar type of goods or services and - without authorization from the trademark owner.

Since the Chinese Trademark Office adopts the first-to-file principle, protection arises from the date of filing instead of the date of use of the trademark. Therefore, we advise technology executives to file an application for their trademark in China as soon as possible if they want to apply the mark to their technological products in China.

Vivien Chan Senior Partner Vivien Chan & Co.

Patent and industrial design infringements are also common IP violations in China. Patents protect inventions by giving the owners exclusive rights to use; manufacture, sell, or import the patented invention whereas design registrations protect the appearance of industrial products.

It's important to keep in mind that relative to ‘novelty' with regards to patents and design IP in China, the element of novelty is lost once the patent or design is published elsewhere in the world or it is used publicly in China prior to the application date. It is therefore necessary for organizations or individuals to keep inventions or designs confidential prior to filing in China.

Technology executives should pay special attention to protecting their software copyrights, too. Similar to trade secrets, which I will discuss later, the owner of an original work can be protected automatically upon the creation of the work and therefore registration of the right is not required. Having said this, copyright records are available in China to preserve the evidence establishing ownership of copyright in China.

Last but not least, trade secrets refer to confidential information which is important to the production of a product and is capable of bringing economic benefits to the owner.

However, it is important to note that reasonable steps to keep the information confidential must be taken in order to claim the information can be defined as ‘trade secrets'.

VO: What are your thoughts on Chinese counterfeiting, particularly with regards to electronics components and, how is Chinese law working to help address the issue and protect the interests of foreign companies?

Chan: Although counterfeiting in China remains an issue, the situation is getting better now since the Chinese government imposed various measures strengthening the protection of IP rights in China against counterfeiting. These include relaxing the requirements necessary to initiate criminal prosecution.

Regarding protection of foreign companies, there is no express law or regulation protecting the interest of foreign companies. However, Chinese administrative bodies and the courts are placing more emphasis on protecting famous marks belonging to foreign owners operating in China.

VO: What are your thoughts on Chinese trademark law? What three (3) trends in Chinese trademark law do you see developing?

Chan: Chinese trademark law is relatively new compared to trademark law in most Western countries. Chinese trademark law may not be as comprehensive or as enforceable as Western trademark law. However, we cannot expect things to improve overnight.

Trademark law in China has, in fact, improved a lot in recent years. In particular, after China joined the WTO. It is foreseeable Chinese trademark law will continue to improved rapidly in the near future.

China recently announced new judicial interpretation on certain laws relating to intellectual property rights including the Anti-Unfair Competition Law and property law.

These judicial interpretations were prepared based on previous cases in order to make the laws more practical and enforceable by giving clearer definitions to rather ‘unclear' interpretations of various regulations where arguments arose.

Furthermore, Chinese trademark law places more emphasis on preventing trademark squatters. Pre-emptive filing of trademarks occurs when a squatter files a trademark application (for another's trademark) in order to then sell the trademark to the rightful owner after registration in order to try to obtain improper profits.

The Chinese government identified this problem and the China Trademark Office recently implemented new guidelines establishing strict requirements for trademark applications filed in the name of a PRC individual.

Under these new guidelines, Chinese individuals have to submit evidence to prove that he or she is, in fact, carrying on business and that he or she has already obtained a business license to produce the designated goods or, to provide the designated services, applied for.

Chinese courts are looking more closely into trademark infringement disputes involving trademarks that are more recognized or, well known. Add to this, a notice was recently issued in China indicating that any judicial recognition of well-known trademarks must be recorded with the Chinese Supreme Court.

In one open speech presented by a Supreme Court judge in Beijing, it was communicated that the plaintiff can even carry lower burden of proof if the fame of the plaintiff's mark is already commonly acknowledged by the public.

VO: Trademark violations in China can be endemic. Many believe overbuilding by some unscrupulous contract manufacturers helps support active gray and black markets. What are three (3) things foreign electronics company executives can do to help combat this problem of 'overbuilding' when engaged with electronics contract manufacturers in China?

Chan: First, company executives should regularly monitor their manufacturers' factories to check if there are any infringing activities occurring.

Second, they should check local and regional electronics markets for any infringing products selling or being distributed. These actions allow the executives to have an immediate knowledge of any infringing acts and can therefore stop the violations as soon as possible.

Third, severe punishments for any infringements should be written into contracts with manufacturers.

VO: System integration (SI) intellectual property refers to how a particular technology hardware product is assembled and how its sub-assemblies communicate with one another. SI intellectual property can contribute a great deal to the value of a company's product and it can help differentiate a company's product in the marketplace while also creating company-specific benefits for the actual end-user. What can company executives do to help prevent IP violations in the area of SI? Are there specific types of documentation that help?

Chan: In order to prevent IP violations relating to SI, it is important for company executives to set up internal regulations with their employees. For example, special measures should be adopted to keep appropriate information confidential.

Moreover, executives should ask employees to sign confidentiality agreements. These agreements should include express provisions in the employment contract with whoever may come across trade secrets or confidential information belonging to the company.

It is also advisable to ask contract manufacturers to sign agreements containing confidentiality clauses before transferring secret or confidential information to the manufacturer. Manufacturers breaching these clauses should be punished severely with the SI owner allowed to claim compensation against the manufacturer found in violation.

VO: What are five (5) IP protection tactics technology company executives should place on their 'IP Checklist' when engaging a supplier or vendor?

Chan: There are, in fact, a lot of items executives should place on their ‘IP Checklist' when engaging suppliers or vendors.

1. Sign an agreement containing confidentiality clauses with their supplier or vendor

2. Check for measures that ensure safe keeping of confidential information

3. Check for measures that detail what happens to product that is ‘rejected'

4. Verify whether or not employment agreements are, in fact, in place between suppliers and vendors, and their employees, and if so, do these agreements contain confidentiality clauses

5. Maintain an accurate list of current tooling and / or equipment provided to suppliers or vendors, such as molds for producing enclosures, to help ensure proper return of such items so they cannot be used to produce goods for other parties, afterward.

VO: Developed with support from the WTO, China's current system of registering and protecting patents, trademarks, copyrights, and product or industrial design meets most standards in the trade-related intellectual property system (TRIPS) agreement. This said, when IP violations do occur between Western and Chinese companies, what are some of the ways Chinese courts determine who actually developed and owns the IP, and how does this differ from how a Western court might determine which party is the actual owner of the IP?

Chan: Right of trademark and right of patent in China are determined under the first-to-file principle as compared to the first-to-use principle.

The first-to-file principle means the IP right arises only when the trademark or patent applications have been filed with the responsible authorities.

When IP violations occur between Western and Chinese companies, preliminary review by the China Trademark Office will consider which company first registered the trademark in China.

Another concern is that evidence developed outside China must be legalized by the Chinese Consulate before it can be admitted in Chinese Courts.

Chinese translation of evidence is also required -- which must be done by an officially-designated translation company.

VO: If you could go forward or backward in time and live for a period of one year, after which, you would then return to the present, what period in time would you select and what would you do?

Chan: If I could go forward or backward in time and live for one year, I would go backward to the period when I was 18 years old.

I would like to take a good rest during the entire year.

VO: Thank you, Vivien.

Chan: Thank you

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